A Firm Is Considering Projects S and L,whose Cash Flows $\text { WACC: } \quad 6.75 \%$

question 103

Multiple Choice

A firm is considering Projects S and L,whose cash flows are shown below.These projects are mutually exclusive,equally risky,and not repeatable.The CEO wants to use the IRR criterion,while the CFO favors the NPV method.You were hired to advise the firm on the best procedure.If the wrong decision criterion is used,how much potential value would the firm lose? $\text { WACC: } \quad 6.75 \%$
$\begin{array}{llllll}&0&1&2&3&4\\\hline\mathrm{CF}_{\mathrm{S}} & -\$ 1,025 & \$ 380 & \$ 380 & \$ 380 & \$ 380 \\\mathrm{CF}_{\mathrm{L}} & -\$ 2,150 & \$ 765 & \$ 765 & \$ 765 & \$ 765\end{array}$

• A) $214.44
• B) $186.47
• C) $218.17
• D) $182.74
• E) $220.03

Learn the computational methods for determining present and future values of money.

Recognize the prevalence of the moral hazard problem in insurance.

Acknowledge trends in mutual fund performance and their implications for investment strategies.

Understand strategies to increase personal efficiency and productivity.

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Definitions:

Standard Deviation

A measurement of the amount of variation or dispersion of a set of values, indicating how spread out the numbers in the data set are.

CEO's Salary

The compensation package awarded to the Chief Executive Officer of a company, typically including base salary, bonuses, and stock options.

Student-Teacher Negotiations

The process through which students and teachers engage in dialogue to reach agreements on aspects of learning and classroom management.

Measure Of Centre

A statistic that describes the central tendency or typical value of a data set, such as the mean, median, or mode.